What if we made the balloon payment in year 5, will she be paying capital gains in proportion to the proceeds she received at that time or will the sale of primary residence still apply since technically she qualifies for it when she sold it?

Super technical thinking going on with planning your system.  

If you just put it on the OTA’s year round it’s technically still available for you to occupy 100% of the year.  

A lot of DSCR lenders are technically POF lenders as they only qualify on 4 things: 1) valid driver's license 2) FICO score 3) rent is more than the PITI of the proposed property and 4) proof of funds for the down payment and closing costs and reserves.

The reason people DON’T get wealthy in real estate is that instead of going with a different service provider when they’re unhappy with a quote and concentrating on earning more money through additional and better investments - they spend the time and energy researching if they can sue, who they can sue, what agency they can report the vendor to, if a class action is possible and the very technical legal aspect of flat fee quote vs hourly quote.  

Doubt I want a HELOC because I can't pay it back right away -plus I technically don't qualify.

Technically he seems to be right, but knowing what your goal is in advance and that the lender wouldn't allow it means that by concealing your actual plan you've been deceptive.

Although this is technically in Alexandria, the hospital is just 1 mile from Springfield Town Center. 

I didn't see any requirement for compensation in this regard, so I don't think I technically owe her anything, but offered $50 for the inconvenience, since it was longer than she initially was ok with.

Helocs like this technically exist, but can be complicated to actually close.